Actual depreciation requirement governs insurance business deductions; notional write-offs for asset depreciation are not allowable.

Under the insurance computation rules, profits of a general insurance business are determined exclusively by the Schedule, and adjustments to the annual accounts are confined to allowances sanctioned by section 10. Rule 3(b), as applied to general insurance, permits amounts written off only to meet actual depreciation of securities or other assets, not a notional or arbitrary figure. The taxing authority may scrutinise the accounts for this purpose, and the proviso to rule 3(b) does not apply to general insurance. Accordingly, four-fifths of the amount written off for depreciation on buildings and allied assets was not deductible because actual depreciation was not proved.

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Issues: Whether, in computing the profits of a general insurance business under section 10(7) and the Schedule to the Income-tax Act, four-fifths of the amount written off as depreciation on buildings and allied assets could be allowed as a deduction when no actual depreciation was shown.

Analysis: The computation of profits of an insurance business is governed exclusively by the Schedule, and the balance disclosed by the annual accounts is accepted only after excluding expenditure not permitted by section 10. Rule 6 permits adjustment of the accounts only in accordance with allowances sanctioned by section 10, and rule 3(b), as applied to general insurance, allows amounts written off or reserved only to meet depreciation of securities or other assets. The governing requirement is that the amount written off must be to meet actual depreciation, not a notional or arbitrary figure. The power of the taxing authority to scrutinise the accounts is not excluded, and the proviso to rule 3(b) has no application to general insurance.

Conclusion: Four-fifths of the amount written off was not allowable as a deduction in the absence of proof of actual depreciation, and the answer to the referred question was against the assessee.

Ratio Decidendi: Under the insurance computation rules, depreciation can be deducted only to the extent necessary to meet actual depreciation proved on the facts, and not on a merely notional basis.

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